Stressed about the economy? ‘Doom spenders’ in Singapore splurge on dining, travel despite debt risk

When Joe (not his real name) found out he was going to be a father, he was overjoyed. But as the delivery date approached, he became stressed about the financial responsibilities involved in fatherhood, especially as he holds an unstable job. To relieve his anxiety, he went shopping.

Enter the world of doom spending.   

Financial consultants tell The Straits Times that they are seeing more of such spending habits afflicting people in their 40s and the so-called Henrys – high earners and not rich yet.

Henrys are typically young people earning higher than average salaries but lacking assets such as a home, retirement accounts or other investments associated with the wealthy.

“People turn to doom spending when there are stresses on the economy and financial difficulties. They spend impulsively to distract themselves.

“This can be scary and take a toll on their financial well-being,” said Ms Stephanie Chiaw, financial services associate director at PhillipCapital. 

Such emotional spending includes retail therapy which involves shopping to ease personal woes like a breakup or a bad day at work, and doom spending to cope with stress over the economy and the state of foreign affairs such as climate change, geopolitics and violence.

Ms Chiaw sees about five doom spenders every week. Most are high-flyers from the media and advertising sector and spend a lot of time on social media. They are not afraid to leverage debt, typically incurring $20,000 to $30,000 every month in credit card bills while splurging on things such as cars, dining, travel and special occasions.

Today, lifestyle-related loans account for one in five applications that Singapore-based digital loan matchmaking platform Lendela receives.

Mr Bryan Tay, Lendela’s Singapore country manager, said the share of such loans has risen 60 per cent over the last two years despite the pessimistic global economic climate.

Over the same period, large loan applications above $10,000 have grown close to 30 per cent and now account for nearly three in five lifestyle loans. 

Mr Tay said the share of loan applications above $20,000 has gone up as high as 70 per cent in the last two years.

These loans now account for one in four lifestyle loans.

“In Singapore, particularly among middle- and high-income earners, lifestyle loans seem to play a role in personal happiness and familial relationships, whether that’s accumulating cultural capital through travel and experiences, funding a dream wedding, or pursuing a hobby that enhances personal growth and one’s quality of life,” he added.

Ms Chiaw said many doom spenders hold multiple credit cards – more than 10 in some cases. They often spend on their cards for air miles. Once enough air miles have been earned, they can be redeemed for almost free airline tickets.

Unlike the older generation which tends to save more for rainy days, the younger generation is particularly affected by how tough economic conditions may impact job security, future earnings and ability to land a lucrative job. 

The fear that they will never be able to save enough to afford big-ticket items such as a house, or even kids for instance, drives them to spend on what they deem are more affordable luxury goods like Chanel bags and Rolex or Audemars Piguet watches for instant gratification. 

The rise of social media, along with buy-now-pay-later schemes, is contributing to the habit.

“They don’t know what is the norm, real or fake. It is also scary because the social media algorithms that personalise the content users see in their feed create this false impression that they need these things,” said Ms Chiaw. 

For instance, Joe may feel pressured to thank his wife with a babymoon, a vacation taken by a couple before the birth of a child. This can be a stay at a local hotel or a more lavish one overseas that comes with prenatal spas and in-house photographers to capture unforgettable moments and the baby bump.

When Joe’s wife finally delivers, he may want to show his appreciation with a push gift – an item given to a new mother for enduring pregnancy and childbirth as well as to commemorate the entry into motherhood. Social media lists gifts from Cartier and Tiffany & Co among the most coveted push gifts.

Emotional spending can get to new heights when it comes to children as parents want the best for them. It can cause young parents to go into debt and derail financial goals. 

Some turn to interest-free purchases on credit cards to satisfy their desires. This enables them to buy first even if they do not have the money in the bank. For example, a top-end MacBook Pro can cost more than $5,800 in one lump-sum payment or $245 a month with zero interest over two years.

This option to settle the bill over time by dividing the purchase amount into smaller equal payments lulls many into believing they can afford expensive items.

According to data from the Monetary Authority of Singapore (MAS), there were 6.1 million principal cardholders and 992,000 supplementary cardholders who spent more than $90 billion in the Republic last year. 

A spokesperson for the MAS told The Straits Times that outstanding credit card balances increased in 2023, underpinned by continued recovery in resident outbound travel and domestic retail sales. However, the overall household debt situation remained manageable, as household income also grew. 

“In Singapore, particularly among middle- and high-income earners, lifestyle loans seem to play a role in personal happiness and familial relationships, whether that’s accumulating cultural capital through travel and experiences, funding a dream wedding, or pursuing a hobby that enhances personal growth and one’s quality of life,”

While charge-off rates – the bad debt written off – and outstanding credit card balances as a share of personal disposable income went up in 2023, they remained below pre-pandemic levels and their long-term average.

“Nonetheless, there may be pockets of consumers that risk becoming over-indebted due to overspending,” the spokesperson noted. “As such, it is important that individuals monitor their spending and do not make purchases on credit unless they are able to repay on schedule.”

“Debtors who need help should approach their lenders early to explore possible loan refinancing and repayment solutions, or Credit Counselling Singapore, which offers debt management guidance,” the spokesperson added.

Besides a set of unsecured credit rules to help safeguard consumers, Singapore conducts national financial education programmes.

MoneySense, for example, educates the public on money management, including reminding consumers to spend within their means and prioritise paying off high-interest debt.

Stop doom spending

Financial advisers warn against emotionally-driven spending as it can trap people in an unhealthy cycle of constant buying.

Leverage is also a double-edged sword. Mr Tay said an informed decision on loans should be part of a broader financial strategy in which borrowers assess their income stability, existing financial obligations and long-term financial goals before taking one up. “Debt sustainability depends on the borrower’s ability to manage repayments within their financial orbit, which often includes an emergency fund, regular savings, investments and insurance,” he added.

The advice is to pay off credit card debt in full given the high interest charges and late payment charge for unpaid bills. 

The fear that they will never be able to save enough to afford big-ticket items such as a house, or even kids for instance, drives them to spend on what they deem are more affordable luxury goods like Chanel bags and Rolex or Audemars Piguet watches for instant gratification. 

An unpaid credit card debt of $30,000 can snowball rapidly. Interest charged can range from 26 per cent to 28 per cent per annum, compounded daily.

Many do not realise that when the debt is not fully paid up after the due date, it will start accruing interest on not only the outstanding balance but also on new purchases made on the card.

Ms Chiaw advises seeking help to address the underlying issue that is fuelling the bad habit and to surround oneself with people who care and can help. 

While there is nothing wrong with a little “girl math” when one divides the cost of a purchase over the number of times one is likely to use the item, impulse spending for a temporary mood lift done with money that one does not have may lead to a huge debt and affect the ability to save for retirement, said Ms Chiaw.

Article repurposed from The Straits Times by Angela Tan, Senior Business Correspondent